Steel giant, ArcelorMittal (MT) is trying to reduce costs by improving its self-sufficiency in steel manufacturing input materials – namely iron ore and coking coal. The company intends to increase iron ore capacity to 100 million metric tons from less than 60 million metric tons in 2010. Similar expansion plans for coal capacity are also expected soon.
Total steel shipments in the fourth quarter of 2010 were 21.1 million metric tonnes compared with 19.5 million metric tonnes in the year-ago quarter. In fiscal 2010, total steel shipments increased 22% year over year to 85.0 million metric tonnes from 69.6 million metric tonnes in the prior year.
ArcelorMittal has been the single biggest customer for Cliffs Natural Resources (CLF) since 2007, contributing 40% of the revenues for Cliffs’ North American iron ore division. According to the umbrella agreement signed between the two companies, ArcelorMittal has been buying almost 10 million tons of iron ore pellets from Cliffs annually. The agreement has not been renewed since it expired at the end of 2010 which implies that supply will be limited as per ArcelorMittal’s requirement.
Moreover, ArcelorMittal has indicated that it will improve its self-sufficiency in making steel due to increasing iron ore costs. Its share of iron-ore mining operations across the world currently contributes to about half its requirements, but the company intends to increase this to around 65% by 2015.
ArcelorMittal competes with other international steel companies like BaoSteel, POSCO (PKX), Nippon Steel and Tata Steel.
Currently, ArcelorMittal has a short-term (1 to 3 months) Zacks #3 Rank (Hold) on the stock.
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